Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).

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The Post really outdid itself in running confused pieces when it ran a column by Lester Brown in its Outlook section warning us that China will start buying our grain in massive quantities. It's common for a column to get 2 or 3 things wrong, but just about every single assertion in this column is mistaken.

To start with, we are supposed to be concerned about China's ability to buy our food based on its holdings of $900 billion in Treasury bonds. Actually, as a country, China's ability to buy our wheat depends on its holding of any U.S. asset. It would have just as much ability to buy U.S. wheat if it did not have a single dollar in Treasury bonds, but instead held $900 billion worth of the stock and bonds of private corporations. (Most estimates put China's holdings of U.S. assets considerably higher than this.)

This distinction is important because U.S. indebtedness to China is a function of the trade deficit not the budget deficit. Many people deliberately promote this confusion in order to use xenophobic fears to promote their deficit reduction agendas. In reality, those who are concerned about indebtedness to China and other countries should want to see the value of the dollar decline. If we eliminated the budget deficit completely, and somehow maintained full employment, we would be borrowing just as much money from China and other countries each year, if we did not lower the value of the dollar. Conversely, if we lowered the value of the dollar to the point where our trade was balanced, the country would not be borrowing a penny from China or anyone else, on net, even if the federal government was still running large deficits.

This logic is also important in the threat that we would supposedly face if we tried to restrict grain sales to China. Brown tells us that China might then boycott our Treasury auctions.

Let's carry this one through for a moment. We have been pushing China to raise the value of its currency relative to the dollar. The way that they keep the value of their currency down is by using the dollars they earn from their trade surplus to buy Treasury bonds instead of just dumping them on international currency markets and allowing the dollar to fall. Of course if the dollar fell, then our trade deficit with China and other countries would shrink. 

So, China will threaten to do exactly what we have been asking them to do -- they will stop propping up the value of the dollar against the yuan. This is supposed to have us scared.

Finally, the real bad news in the picture -- China pushing up the price of wheat -- actually is not scary for people in the United States at all. The U.S. currently produces about 2 billion bushels of wheat a year, roughly half of which is exported. Prices have fluctuated a great deal in recent months, but let's start with a price of $10 a bushel, the higher end of the recent range.

At this price, we spend roughly $10 billion a year on the wheat we consume domestically and get $10 billion a year from the wheat we export. Suppose the buying by the Chinese doubled the price to $20 a bushel. This means that the wheat we consume would cost us another $10 billion a year. Meanwhile the wheat we sell overseas would allow us to buy twice as many imports as it had previously. The $10 billion rise in food prices would come to a bit more than $30 per person per year -- less than 10 cents a day. Are you scared yet?

Even if we said that the price of wheat tripled because of the Chinese and then doubled this impact because of China's buying up of corn, soy beans and other crops, we still only get 40 cents per person per day. In short, higher food prices are not going to be bad news for people in the United States.

Where this column misses the boat is that higher food prices will be a problem for the world's poor who must subsist on just 1-2 dollars a day. Hundreds of millions of people in Sub-Saharan Africa and other poor regions of the world will face serious consequences if world food prices rise substantially. Remarkably, these people did not find their way into this column.

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It's so fashionable these days to beat up on public sector pensions that the rules of arithmetic no longer appear to pose a binding constraint. The New York Times concluded an article complaining about the cost of state pension with a quote from Sylvestor Scheiber, one of the pension analysts advocating cuts in public pensions:

"By the time the typical private-sector worker has retired, the teachers, the highway patrolmen and these folks have already gotten $200,000, $300,000, $400,000 in pensions.”

The comment refers to the fact that many state workers can receive full pension benefits while still in their 50s. The immediate point of reference is Wisconsin, where it tells us that police and firefighters can retire at age 53 if they have 25 years of service, while other workers can retire at age 57 if they have 30 years of service.

The article does not tell us what percent of state employees actually retire at these ages. It is likely that most state employees don't have 30 years of service by the time they reach age 57, so they would have to work longer to receive their full pension benefit. However, even if we do assume that an employee other than a police officer or a firefighter (i.e. the "teachers and these folks") retires at a relatively early age, they will not get the $200,000, $300,000, $400,000 in pension benefits that Mr. Scheiber touts.

According to the article, the average pension for public employees in Wisconsin is $26,000. (Many public employees do not get Social Security, so their pension is likely to be the vast majority of their retirement income.) Most workers start taking their Social Security benefits before they reach age 63, which creates a gap of less than 6 years between the lowest age at which most Wisconsin public employees can draw their benefits and the age at which most private sector workers have retired.

If we multiple 6 times the average annual pension of $26,000 we get $156,000, as the amount of benefits that public sector workers can receive before private sector workers typically retire. This is considerably less than the $200,000, $300,000,  $400,000 numbers tossed out by Mr. Scheiber. And this would only apply to a worker who had 30 years of employment with the state by the time they reached age 57. A worker that first started working for the government at age 30 would have to wait until age 60 to retire with a full pension in Wisconsin, giving them less than three years of additional benefits.

It is also important to note that public sector workers pay for these benefits with lower wages than their private sector counterparts. Including all benefits, public sector workers still receive slightly lower compensation than their private sector counterparts after controlling for education and experience. This picture would be little changed even if the calculations of public sector compensation were adjusted upward by increasing the pension contribution 20-25 percent to account for the current underfunding of pensions.

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According to the Washington Post, multinational drug companies retaliated against India for having weak patent protections by pulling out of the country in the 1970s. The Post seems to imply that this decision could have been motivated by economics. That is not true. If a drug company is engaged in reverse engineering it gains no particular advantage from having the manufacturing facilities located within India. If drug companies left India because of its patent policy, as the Post claims, then the motivation was political -- to pressure India to change the policy -- not economic.  Add a comment

That's why they show a scary looking graph that shows "entitlement" spending (Medicare, Medicaid, and Social Security) going through the roof. They do this even though everyone who has looked at the issue knows that the real problem is health care spending. The U.S. spends more than twice as much per person as other wealthy countries.

The problem is our broken health care system. Here is the graph that honest people use.

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That is what this project of the Annenburg Public Policy School told readers today when  it backed up its earlier piece claiming that Social Security does contribute to the budget deficit. If did have access to the Internet, FactCheck.org could have easily discovered references to the "on-budget" budget in any budget document it chose to examine (e.g. here and here). The political figures who FactCheck.org criticized in its initial post were obviously referring to this measure of the budget deficit, as was pointed out in a previous note.

An organization engaged in fact checking statements by public figures should probably invest in an Internet subscription so that it can more accurately do its work.

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Charles Krauthammer is very upset that Jack Lew, President Obama's budget director, is saying true things about Social Security and the budget. Krauthammer is troubled by the fact that Lew said that Social Security does not add to the deficit.

Lew based his claim on the law governing Social Security's operations, it can only spend money that has in its trust fund. This money comes either from the designated Social Security tax or from the bonds and interest on the bonds that were bought using the surplus from prior years. No money can come from general revenue.

This seems pretty simple, but not to Krauthammer:

"When your FICA tax is taken out of your paycheck, it does not get squirreled away in some lockbox in West Virginia where it's kept until you and your contemporaries retire. Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury - and is spent. On roads, bridges, national defense, public television, whatever - spent, gone.

In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called "special issue" bonds.

Special they are: They are worthless."

It's nice that Mr. Krauthammer thinks that government bonds are worthless. (I have a standing request that he, or anyone else, pass along any government bonds that he considers worthless. We will use them to support CEPR.) While he is welcome to believe anything he wants, the bonds held by the Social Security trust fund are backed by the full faith and credit of the U.S. government. Krauthammer may want to default on bonds that belong to the nation's workers, but his desires are not the same as reality.

Selling these bonds to fund Social Security no more raises the deficit than the decision of a rich person to sell bonds to finance their consumption raises the deficit. The deficit was incurred when the money was lent to the Social Security trust fund in the first place. 

The size of the deficit, including the money borrowed from Social Security -- the on-budget deficit -- is reported in every budget document put out by the government (e.g. here and here). Krauthammer might try to learning a bit about how the budget works before he goes off ranting about Jack Lew and Social Security [Corrected -- thanks WTF].

He also might do a little homework about his proposed fixes for Social Security. Two of his fixes, changing the indexing formula and raising the retirement age would hit elderly people who are barely scraping by as it stands. However, his third idea -- taking away benefits for rich people like Warren Buffett -- would not even save the program any money.

While Krauthammer may know lots of rich people like Buffett, in reality they comprise a tiny portion of the population and the benefits they receive are a trivial share of what Social Security pays out each year. As a result, a means test that was designed to take away benefits from the country's Warren Buffetts would likely cost more to administer than it would save the program in benefit payments.

In reality, the projected shortfall in the program is relatively distant and minor. The country has far more urgent concerns, like putting 25 million unemployed or under-employed people back to work. This should be the focus of our political leaders right now.

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Yes, this horrible segment on my local NPR affiliate WAMU repeated the same nonsense as yesterday. It told listeners that the key policy choice facing the country is whether we will just let the Martians take over the planet, as advocated by President Obama, or stand up and fight, as demanded by the Republicans.

Okay, that was not quite how the segment ran, but it is pretty damn close. The segment told us that the main energy choice facing the country is whether we focus on producing oil and gas in the United States or we focus on switching over to alternative energy.

This is not true. There is no option to make the country independent of foreign energy by increasing domestic production of oil and gas. Let me repeat that so that even a top reporter at  a major news outlet can understand it.

There is no option to make the country independent of foreign energy by increasing domestic production of oil and gas.

The reason is simple, the United States does not have enough oil and gas to replace the amount that it imports even if we drilled every last barrel out of every environmentally sensitive region in the country. Just as the city of Tokyo does not have enough oil to be energy self-sufficient, neither does the United States have this option.

There are zero, nada, no projections that show that oil and gas reserves in the United States are large enough to allow the country to replace the fossil fuels that it imports. It currently imports about 11.5 million barrels a day, down from its pre-recession level of 13 million. Its domestic production is about 5.6 million barrels a day, and dropping. (It had been around 10 million a day thirty years ago.)

Projections from the Energy Information Agency show that if we drill everything in sight, we may be able to increase domestic production by 1-2 million barrels a day (it would take a decade to get this gain). That would mean that we would be very lucky to reduce dependence of foreign oil by even 20 percent.

Given the reality, the correct response of a real reporter to a politician who wants us to have "red, white, and blue" energy by drilling everywhere is to ask him if he has any idea what he is talking about or whether he is deliberately saying things that are not true.

A real reporter does not pass along an untrue statement to listeners and compare it to a true statement and make it a "he said/she said" for listeners. Reporters have the time to evaluate the truth of statements by public officials -- that is their job -- listeners do not.

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Michelle Singletary, the Post's generally adept personal finance reporter, missed one today. Regulations by the Fed limiting debit card swipe fees are definitely a positive step. Currently these fees are passed on to all consumers. The ones getting nailed worst are the cash customers who pay the higher price without even getting the convenience. This is like a sales tax.

The reduction in fees will not be passed on everywhere and always to consumers (firms do have market power), but to be an economist here, if firms thought they could mark up their prices by more, why aren't they doing it already? In other words, it is reasonable to assume that most of the savings will be passed on to consumers.

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That is the implication of a NYT Dealbook post that reported JPMorgan's claim that parts of the Dodd-Frank bill will favor European banks. If JPMorgan's claim is correct, then it means that U.S. consumers need to worry less about any potential increase in the cost of financial services that could result from better prudential regulation. JPMorgan is claiming that European governments are willing to incur the cost of subsidizing risky practices of their banks (think Iceland).

Economists would argue that this is pure gain to U.S. consumers, just as they argue that being able to get low cost textiles and steel from China or India is a gain. If European subsidies make U.S. financial services uncompetitive, then the U.S. should simply focus on the areas in which it enjoys a comparative advantage.

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WAMU, one of the NPR affiliates in Washington, DC, has a segment during Morning Edition called "Power Breakfast" which discusses issues being debated in Congress. This segment is often embarrassing for the amount of misinformation that it can pass along in just a few minutes.

This morning was one such occasion. It began with a comment by Texas Senator Kay Baily Hutchison, complaining about the price of gas and the cost of filling up her pick-up truck. Ms. Hutchinson then said that part of the answer to high gas prices was increased drilling in the Gulf of Mexico and then talked about a bill that she is co-sponsoring with Louisiana Senator Mary Landrieu which would allow for some additional drilling.

While the segment did give a short sound bite to an opponent of drilling, Ohio Senator Sherrod Brown, it would have been appropriate to ridicule Ms. Hutchison's comment, since there is no plausible story in which her bill would have any visible impact on the price of filling up her pick-up.

The amount of additional oil that can be drilled from the Gulf is only around 0.2 percent of world supply. It would take roughly 10 years to get up to this level of production. Using normal elasticity assumptions, this would imply a reduction in the price of oil of around 0.5 percent. That would mean that if we completely opened the Gulf for drilling, it would save Ms. Hutchison about 30 cents off the cost of filling her pick-up in 2021. Of course the bill she has proposed would have considerably less effect. 

If politicians can say ridiculous things to advance their political agenda, and the media do not point out that their comments are ridiculous, then they will have incentive to say ridiculous things. This makes for an ill-informed nonsensical debate on public policy issues. The media bear much of the blame for this since it can be expected that politicians will do whatever advances their political career. It is the media's job to hold them accountable.

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Okay, I didn't expect this headline, but it would be worth reminding readers that this would be the effect of the Republican proposal for sharp budget cuts for the remainder of the 2011 fiscal year. Analyses by both Goldman Sachs and Moody's have shown that the spending cuts, if extended into 2012, would eliminate more than 500,000 jobs. It would have been appropriate to mention this point in the article. Add a comment

That was not the way that the Post framed the issue, but this is the implication of an article on public sector pensions in California that began with a discussion of the $520,000 a year pension received by the former administrator of a small city. The article cites the claim by the California Foundation for Fiscal Responsibility that more than 15,000 retired state employees receive pensions of more than $100,000 a year. It then cites a spokesperson for the American Federation of State County and Municipal Employees saying that the average pension is just $19,000. 

If both numbers are accurate, then this means that roughly 3 percent of retirees account for almost 20 percent of total benefits (assuming an average pension for the over $100k group of $110k), which means that the average pension for the bottom 97 percent is a bit over $16,000 a year.

The article includes a statement from an economist blaming the public sector employees for not better policing their pension system. While this is a reasonable point, it is also reasonable to ask why the people supervising the pension systems, who are paid six figure salaries for this work, have not called attention to abuses like the one highlighted at the beginning of this article.

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The NYT has an article telling readers that Latvian officials working for the European Union bureaucracy earn much higher pay than their counterparts who remain in Latvia. This is of course true. It would be very surprising if it were not the case.

The European Union is dominated by relatively wealthy countries like France, Germany, and the U.K. It would be expected that the pay of its officials would reflect pay scales in these countries. This means that when poorer countries, like Latvia, enter the EU, their nationals can anticipate big pay increases if they move from employment by the Latvian government to employment by the EU, just as a plumber would get a big increase in pay if they moved from Latvia to Germany.

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David Autor has inaccurately reported that he has found evidence of a hollowing out of the distribution of jobs for men, with increased employment at the top and the bottom ends of the wage distribution and a loss of jobs in the middle. NYT columnist David Leonhardt seems to have largely bought this story as well.

Actually, as John Schmitt, my colleague at CEPR, and former colleague Heather Boushey pointed out, Autor's work shows the opposite. In the most recent business cycle, 2000-2007, there was a relative decline in the demand for all male occupations, except those at the bottom of the wage distribution. There was less of a decline for jobs near the top than for those in the middle, but it would be more than a bit of an exaggeration to call this a hollowing out of the job distribution. Autor's data is essentially showing an increased demand for less-skilled occupations pure and simple.

The story for the prior business cycle is also not quite what Autor describes. Between 1989 and 1999, there actually was a decline in relative employment for all occupations below the median except those near the very bottom (the bottom decile).

A large percentage of the workers in this bottom decile were immigrants. There has been considerable research (e.g. here and here) that suggests that immigrants don't compete directly with native born workers and instead fill a sub-class of occupations in which jobs would have gone largely unfilled in the absence of immigrant workers. Insofar as this is the case, it suggests that the growth in the lowest wage occupations was not a demand-side phenomenon, but rather a supply side story. In this view, if there had been a large influx of immigrants occupying the middle wage occupations, then we would have seen strong growth in employment in these occupations as well (albeit at much lower wages).

In the period from 1979-1989, the first business cycle analyzed by Autor, there is a decline in the relative shares of employment for all occupations below the 60th percentile. This also does not support the hollowing out story.

To summarize, in the first cycle, Autor finds increased relative demand for highly skilled occupations and decreased demand for less skilled occupations. In the second cycle he finds increased demand for highly skilled occupations and decreased demand for all but the lowest skilled occupations, which may be the result of an influx of low-paid immigrant workers. In the third period, there is a decline in the relative demand for everyone but less-skilled workers. In other words, he really doesn't show any evidence of a hollowing out of the job distribution.

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The NYT reported on the dispute between retailers and banks over debit card fees. The banks, by their own claim, take advantage of their monopoly power to charge fees that are far above their cost. (We know this because they have threatened to raise the cost of services like maintaining checking accounts if they have to lower their fees on debit cards. They could only do this sort of cross-subsidy if they had some degree of monopoly power in debit cards.) 

The article never discussed the situation of customers who pay in cash. These are likely to be the biggest gainers from lower debit card fees. Retailers are generally required to charge all customers the same price regardless of how they pay. This means that cash customers pay a price that covers the cost of debit card and credit card transactions, even though they do not receive the benefit of these services.

In effect, the banks impose a sales tax of 1-2 percent on all customers to cover their fees. Debit and credit card users get a benefit in the form of greater convenience for this tax. Cash customers just pay the tax. Of course cash customers also tend to be poorer, since these are largely people who could not get credit cards and may not even have bank accounts. So, these fees are a transfer from the less wealthy to more wealthy.

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Actually Zakaria is not upset that the government will give far more money to the average rich person this year than the average child. He is upset that it spends more money on the elderly.

The main reason that the government spends more on the elderly than the young is that we run a public pension program, Social Security, through the government. We also run a seniors' health insurance program, Medicare, through the government. In both cases people pay a dedicated tax for these benefits. (The Medicare tax does not pay for the whole cost of the program.)

Zakaria is upset that seniors are allowed to receive the benefits that they have paid for. By the same logic, he should be upset that billionaires like Peter Peterson can get millions or even tens of millions of dollars in interest each year on the government bonds they own. After all, this money would be far better spent educating our children than being put in the pockets of these incredibly wealthy people. The Zakaria methodology would have us go after these interest payments on the debt, if it were applied consistently.

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It seems not. A front page NYT article reported on the drop in profits that the drug industry expects over the next year as many of its blockbuster drugs lose patent protection. The article reports that some of the major pharmaceutical companies may cut back their research spending as a result.

The article never discussed the possibility of alternative funding mechanisms. For example, Joseph Stiglitz, the Nobel prize winning economist, has advocated a prize fund whereby the government would buy up patents and allow all drugs to be sold at their competitive market price. It is also possible for the government to simply pay for the research up front (it already finances almost half of biomedical research through the National Institutes of Health). This also would allow the vast majority of new drugs to be sold for a few dollars per prescription.

This sort of overview of the pharmaceutical industry would have been an appropriate place to discuss the merits of the current patent system for financing prescription drug research.

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Yes, Robert Samuelson is at it again, spreading inaccurate and misleading claims about Social Security to justify taking money from retirees.

It seems that for some reason he has a hard time understanding the idea of a pension. This shouldn't be that hard, many people have them.

The basic principle is that you pay money in during your working years and then you get money back after you retire. Social Security is a pension that is run through the government. Therefore Samuelson wants to call it "welfare."

It is not clear exactly what his logic is. The federal government runs a flood insurance program. Are the payments made to flood victims under this program "welfare?" How about the people who buy government bonds. Are they getting "welfare" when they get the interest on their bonds? If there is any logic to Mr. Samuelson's singling out Social Security as a source of welfare, he didn't waste any space sharing it with readers.

There are a few other points that deserve comment. He claims that the trillions of dollars of surplus built up by the trust fund over the last three decades were an "accident." Actually, this surplus was predicted by the projections available at the time. If anyone did not expect a large surplus to arise from the tax increases and benefit cuts put in place in 1983 then their judgement and arithmetic skills have to be seriously questioned.

In terms of the program and the deficit, under the law it can only spend money that came from its designated tax or the interest on the bonds held by the trust fund. It has no legal authority to spend one dime beyond this sum. In that sense it cannot contribute to the deficit. Mr. Samuelson apparently wants to use Social Security taxes to pay for defense and other spending.

If we allow for the possibility that we could impose a "Social Security" tax on workers and then use this money for other purposes, the decision to not use it for other purposes can be said to make the deficit larger. But this is sort of like saying that our decision not to steal money from disabled people makes the deficit larger. After all, if we had a policy of stealing from the disabled, then the deficit would be lower. How can anyone argue with that.

Finally Samuelson decided to get a little creative with numbers to press his case. He told readers that:

"In 2008, a quarter of households headed by people 65 and over had incomes exceeding $75,000."

That's not what the Census data show. They put the share of the over 65 population with incomes of more than $75,000 at 15.8 percent. And, almost half of these people had incomes of less than $100,000. In this context it worth remembering that President Obama put his lower cutoff for those subject to tax increases at $200,000.

So, we are reminded yet again that Robert Samuelson really doesn't like Social Security and that he is willing to make up numbers to push his case.

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The Washington Post editorial board is upset that members of Congress tried to prompt Federal Reserve Board Chairman Ben Bernanke to weigh in on the merits of Republican proposals for large budget cuts. While they are right to be upset about such childish behavior, the Post missed the main reason.

After Alan Greenspan, Ben Bernanke is the person most responsible for the economic collapse the country is now recovering from. He was one of Fed governors from 2002 to 2005, before having a brief stint as President Bush's chief economic advisor. He then returned as Fed chairman in January 2006. During this period, he stood by and did nothing as the housing bubble grew to ever more dangerous levels and in fact publicly insisted that it was no big problem. It would be hard to imagine a more disastrous mistake.

Given Mr. Bernanke's track record he is very lucky to have a job (and indeed a well-paying one) at a time when so many workers do not. It is hard to see why the opinion on economic policy of someone who didn't see any problem with an $8 trillion housing bubble would be especially valuable.

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The headline of the NYT article on the February jobs report told readers about the "big jump" in private sector jobs reported for the month. While the 222,000 increase in private sector jobs was indeed good compared to the anemic growth that we have been seeing, it is a bit misleading to describe this as "big." In the four years from January 1996 to January 2000 the economy generated an average of almost 240,000 jobs a month.

In past recoveries from serious downturns the economy generated jobs at a far more rapid rate. In the year following the end of the 1981-82 recession the economy created private sector jobs at the rate of more than 280,000 a month, in a labor market that was almost 40 percent smaller than the current market. In the year from November 1976 to November 1977 the economy created more than 290,000 private sector jobs per month in a labor market that was just a bit more than half as large as today's.

It is also important to remember, as noted in the article, that the February number was in part a bounceback from a weather-weakened January number. Firms that put off hiring because of weather conditions in January ended up doing their hiring in February. The average growth in private sector jobs for the last two months was just 145,000.

Given the ongoing decline in public sector employment due to state budget crunches (@15,000-20,000 per month), this is only a bit more rapid than the 90,000 growth rate needed to keep pace with the growth of the labor force. At this rate, the economy will not return to normal levels of unemployment until well into the next decade.

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It would be nice if the answers that economists gave us on economic issues did not change when the political environment changed. Unfortunately, we don't live in such a world. This can be seen very clearly in the current debate over the assumption on rates of return that public pensions should make for the assets they hold in stock.

Most economists today seem to be lining up on the side that pensions should only assume that stock will provide the same rate of return as Treasury bonds. Even though the expected nominal return on stocks might be 10 percent, these economists argue that because of the risk associated with stock returns public pension funds should only assume the rate of return on risk free Treasury bonds, roughly 4.5 percent.

The counter-argument is that state pension funds can essentially be indifferent to the risk of market timing. If the market is depressed for a few years, the state pension fund would still have adequate assets to pay all benefits. There would only be a problem if the market remained permanently depressed, which is not plausible if the widely accepted projections for long-term economic growth prove accurate.

This lower rate of return makes a huge difference in the size of pension liabilities. This change in accounting, coming at a time when state budgets are hard-pressed due to the recession, would create substantial pressure to reduce pension benefits and possibly eliminate defined benefit pension plans altogether.

It is interesting to note that the economists' concern with pension fund accounting just happens to coincide with a major push by the right-wing to attack public sector workers and especially public sector pensions. State pensions have been assuming 10 percent nominal returns on their pension's stock holdings for decades. This fact never seemed to trouble economists previously.

Interestingly, many economists had argued the exact opposite position in the context of Social Security privatization. Andrew Biggs, one of the economists who has been very prominent in the debate for lowering the return assumptions on public plans, explicitly argued for assuming a high rate of return for the stock held in privatized Social Security accounts. Other proponents of privatization took the same perspective, which was the main benefit of their proposal.

Even advocates of preserving the current Social Security system wanted to assume a higher rate of return for money held in stock, albeit for stock held in the Social Security trust fund. Two of the country's leading experts on Social Security, Henry Aaron and Robert Reischauer, both explicitly called for putting part of the Social Security trust fund in the stock market to take advantage of the higher rates of return offered by stock. President Clinton made the same proposal.

It is worth noting that these plans for putting Social Security money in the stock market were made near the peak of the stock bubble, when price to earnings ratios were approaching 30. In this context, they were making absurd assumptions about the prospect for future returns, as some people pointed out at the time. By contrast, now that the market has plummeted from its bubble peaks and price to earnings ratios are close to their long-term average, it is plausible that the market will provide its historic rate of return.

If economists were consistent, they would apply the same methodology for assessing stock returns in the context of Social Security privatization in the late 90s as they apply to public pension funds in the current crisis. This does not appear to be the case.

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